India’s Ties to China Continue to be Characterized by Strategic Distrust and Economic Dependency

In October, China and India concluded an agreement on patrolling arrangements along their disputed shared border. The agreement reduced bilateral tensions and paved the way for the first meeting between the two countries’ top leaders in five years. Meanwhile, economic ties between China and India have continued to grow. China retook the position as India’s top trading partner in fiscal year 2023-2024. 

Pamir assesses that fundamental strategic distrust between China and India will continue to adversely impact the bilateral relationship. In this context, India is likely to remain a part of the U.S.-led strategy to confront China. However, domestic factors in India, notably the interests of the Indian business sector, will likely ensure that India’s economic dependence on China persists, even as New Delhi seeks to rectify the imbalance. 

In this context, Pamir further assesses that India is unlikely to pose as a significant economic competitor to China in the foreseeable future, particularly as a viable production site for multinationals. India’s fractious domestic political landscape, weak critical infrastructure, and poor logistics militate against the hope that it could become a reliable manufacturing base for foreign companies.    

India Reaches Border Patrol Agreement with China

In October, China and India reached an agreement on patrolling arrangements along a stretch of their disputed shared border known as the Line of Actual Control (LAC). The LAC separates Chinese and Indian-held territories in a region in the northern Himalayas. As a result of the agreement, the two countries have moved most of their troops in the area further away from the disputed border, according to the Indian Defense Minister. 

China and India share a border of more than 3,000 kilometers, of which an area of 120,000 square kilometers is in contention. In 1962, China and India fought a bloody border war. Since then, military clashes have erupted from time to time along the LAC, which is a loose ceasefire line that the two sides have generally observed. The most recent military clash took place in June 2020 when at least 20 Indian soldiers and four Chinese soldiers were killed. The two countries have not conducted any senior leadership exchanges since then. 

Pamir assesses that the recent border patrol agreement between India and China is a small but positive step toward easing bilateral tensions. In this context, it paved the way for an October 23 meeting between Indian Prime Minister Narendra Modi and Chinese President XI Jinping on the sidelines of the October 22-24 BRICS summit held in Kazan, Russia. This was the first meeting between the two leaders in five years.  

The agreement is also likely a sign that New Delhi seeks to rebalance its foreign relations after recent diplomatic disputes with Ottawa and Washington over allegations that the Indian government ordered assassination attempts on Sikh leaders in Canada and the U.S. From Beijing’s perspective, reduced tensions with India should help ease the geopolitical pressure on China and improve the conditions for expanded economic relations with India, which could aid in China’s economic recovery.

Strategic Distrust and Economic Frictions

However, despite the recent bilateral agreement, there is no indication that a permanent settlement of their border dispute is forthcoming. Both countries continue to maintain heavy military presence in the disputed region. India also continues to host the Tibetan exile government in Dharmsala, which irritates China. On top of these military and political considerations, factors that generate economic and trade frictions between China and India are growing, including trade deficits, market access, and treatment of Chinese-invested businesses in India.    

• The U.S. replaced China as India’s largest trading partner in the 2021-2022 and 2022-2023 fiscal years. Nonetheless, economic ties between the two countries have grown in recent years. According to Chinese statistics, China-India trade volume was valued at $125.6 billion in 2021 (up 43.3% YOY), $135.98 billion in 2022 (up 8.4% YOY), and $136.2 billion in 2023 (up 1.5% YOY). In fiscal year 2023-2024, China retook its position as India’s largest trading partner. 

• However, bilateral trade is heavily in China’s favor. For example, China’s exports to India in 2023 totaled $117.68 billion but its imports from India were valued only at $18.54 billion. India has repeatedly stated that this situation is unacceptable and has been trying to rectify it. In 2023, New Delhi launched 23 trade investigations against Chinese imports, the largest number of such investigations against China in the world. It has also set up strict vetting procedures for Chinese investments in India. 

• Despite New Delhi’s efforts, India remains heavily dependent on China for its economic growth. Indian imports from China have surged 56% since the 2020 border clash. Most of the equipment and nearly 80% of raw materials used by India’s non-generic pharmaceutical industry are sourced from China. In fiscal year 2023-2024, 43.9% of India’s electronics imports originate in China. 

At the end of the day, the strategic distrust between the two countries remains deep, as illustrated by a recent commentary penned by a senior reporter at Xinhua, China’s official news agency. According to the commentary, China “should never underestimate India. In the long run, China has only two strategic competitors, one is the United States, and the other is India…. India has great development potential. India also has various animosities [against China]. We have no way out but to expedite our own development and uplift ourselves.” In this context, to support its regional and global ambitions, Pamir assesses that India is likely to continue to participate in the U.S. Indo-Pacific strategy to confront China.